If you are struggling with debt repayment, you need to adopt an effective solution as soon as possible; Debt consolidation is one of the best strategies in this situation.
It involves the pooling of all outstanding balances on loans and credit cards into one account. In this way, you will be able to make a single smaller monthly payment, save money and lower your risk of default.
The main goal is to get a lower interest rate on the consolidation loan.
Debt Consolidation & Your Needs
One of the major benefits of debt consolidation is that it is quite flexible. It can be done in different ways so as to suit the needs of borrowers precisely. One of the simplest techniques involves the use of a 0% interest credit card. You can transfer all of your outstanding credit card balanced to this card so that you can automatically eliminate the interest payments. You will achieve the highest possible savings by repaying your debt in full before the 0% interest period expires.
Another popular and effective strategy involves the use of a home equity loan for debt consolidation. You can transfer the balances on all of your current personal loans and lines of credit to your home loan balance or to a new home equity loan. That way, you will pay a much lower interest which is typically for the secured loans. You will have smaller monthly payments and save money. The only drawback is that if you default on the secured loan, your house may be repossessed.
Step-by-Step: Consolidate your debt
If you have serious difficulties with the repayment of your existing debt and you are accumulating more debt, you should turn to a specialist immediately. A debt counsellor or a specialised financial advisor will be able to provide the professional assistance which you require. The specialist will determine your current financial position and present an effective strategy for getting out of debt.
You will know how much you need to borrow and how much you can afford to pay every month.
You have to make the application for a debt consolidation loan straight away after finding the right type of product for you. You will have to undergo a credit check so you must ensure that you have been paying all your bills timely for the past few months. The lender will also look into your income and monthly expenses to confirm that you will have sufficient amount of money left for the repayment of the loan. You have to be absolutely certain about the loan which you are applying for as making more than one application can cause considerable damage to your credit score.
If you're already blacklisted – you will need to seek information on obtaining a loan for people with bad credit.
1. Eligibility for Consolidation of Debt
You will have the best chances of approval for a debt consolidation loan if the income you have left after covering your monthly expenses exceeds the monthly instalment on the loan. That way, the risk for the lender is much lower. Similarly, your credit history has to be excellent or at least very good. People with bad credit have the lowest chances of getting approved. At the same time, most lenders are willing to approve applicants with a few blemishes on their credit record as long as they have been diligent borrowers otherwise.
If you have one or two late payments, for instance, you can expect to qualify.
2. Mistakes to Avoid
All debt consolidation loans come with closing costs, which you will have to pay out of your pocket. Usually, they are calculated as a percentage of the total loan amount. It is a mistake not to provide for the payment of these costs and you must avoid it. It is best if you prepare the money in advance. You should avoid loans which give you the opportunity to add these costs to the loan amount or to eliminate them but pay higher interest rate.
Either way, you the total cost of the loan will be much higher.
It is a mistake to accept loan terms which are unfavourable for you. There is no point in consolidating your debt just to keep struggling with it. The best strategy which you can adopt is to negotiate the terms. Most lenders are more open to negotiation than you think, especially when the demand for their credit products is fairly low. You can readily bargain for lower interest rate, smaller monthly payments and more flexible repayment structure.
Before you apply for a debt consolidation loan, you must determine how much you owe currently, how much you will need to borrow and how you will repay the new loan. This is very difficult with someone who is not versed in finance and the risk of making a mistake is high. That is why in this situation you will benefit greatly from using the services of a credit counsellor.
The specialist will recommend the most effective method for debt consolidation in your case and will help you devise a precise plan for the repayment of the new loan so that you do not have to struggle with your finances.
The credit counsellor will assist you with finding the most affordable consolidation loan and with qualifying for it.